Serps money - what's the catch?

ScoobyZ

Hi my wife's sister works for Beals Estate Agents (lettings):
The have a Finance department that have been speaking to people about some contracted out of serps money that she could have access to when she is 55.

She had an assessment / made some calls and they have "found" £36,000 in this 'pot'.

They have also asked her for details of some of her old (frozen) company pensions.

I am in the process of arranging an independent financial advisor for her, but am just curious what the catch is? What's in it for them? and if she should go back to Beals this week?

Any help appreciated.

hyubh

ScoobyZ wrote: »

The have a Finance department that have been speaking to people about some contracted out of serps money that she could have access to when she is 55.

She had an assessment / made some calls and they have "found" £36,000 in this 'pot'.

Did she contract out of SERPS into a personal pension many years ago then? And if she did, how did she manage to 'forget' this investment? (Maybe she didn't!.)

They have also asked her for details of some of her old (frozen) company pensions.

Do you mean deferred final salary pensions? (Which wouldn't be 'frozen'.)

dunstonh

I am in the process of arranging an independent financial advisor for her, but am just curious what the catch is? What's in it for them? and if she should go back to Beals this week?

Probably want her to transfer it and some point and earn from it that way.

ScoobyZ

hyubh wrote: »

Did she contract out of SERPS into a personal pension many years ago then? And if she did, how did she manage to 'forget' this investment? (Maybe she didn't!.)

I think she did contract out, and wasn't aware.

Do you mean deferred final salary pensions? (Which wouldn't be 'frozen'.)

Yep deferred, as in still there but she makes no payments.

xylophone

Deferred Defined benefit/Final Salary pension?

They will be revaluing in deferment. These were likely to have been contracted out.

http://www.barnett-waddingham.co.uk/comment-insight/blog/2012/07/24/revaluation-for-early-leavers/

Re the SERPS pot, presumably she took up employment with a company without a DB scheme and took out a policy (formerly known as "protected rights") with an insurance company?

Does she/did she receive annual statements from the administrators of the occupational pensions/the insurance company?

Or has she changed address and not advised the parties concerned?

Is she over 55 now? She will receive the state pension under the new scheme? She can obtain a pension statement.

https://www.gov.uk/new-state-pension/overview

atush

If he sister is trying to make money off her, or passed on her name- not very family like.

I would never go to the finance dept of a letting business for financial advice.

ScoobyZ

xylophone wrote: »

Re the SERPS pot, presumably she took up employment with a company without a DB scheme and took out a policy (formerly known as "protected rights") with an insurance company?

Does she/did she receive annual statements from the administrators of the occupational pensions/the insurance company?

Or has she changed address and not advised the parties concerned?

Is she over 55 now? She will receive the state pension under the new scheme? She can obtain a pension statement.

https://www.gov.uk/new-state-pension/overview

Hi, I have just been going through all her annual statements. (Standard Life), She has always had pensions where the company also contributes. She did have a period before I met her where I need to find some more details so she must have contracted out then.

To confuse things she has two standard life pensions and it looks like one doesn't have our new address - we will contact them tomorrow.

She is 51 now.

So am I right in thinking that Beals will just look to reinvest the 36k in another pension?

I will get a pension statement for her and also see a local independent as well to try an consolidate, she has had quite a few jobs and has about 5 pensions.

agarnett

It is quite likely your wife may have been mopped up as part of the government promotion in the late 80s where contracted out backdated NI rebates could be diverted into a Personal Pension specially set up to receive them and nothing but them, commonly known as a SERPs Policy. I believe there was an additional incentive of an extra 2% of salary rebated into such a new policy or similar offered by the government. I've got one that was sold to me alongside a new employers' DC Group Pension Policy in April 1989 which was backdated to April 1987 even though I was in a contracted out DB scheme between April 1987 and May 1988!

My policy has remained untouched all these years (except that it has intermittently received continuing contracted out NI rebates from HMRC), and in the years when I was not contracted in, those rebates have through no action by me when I have switched jobs and pension plans, continued to be made by the National Insurance office into the same old policy right up to 2011 when I think the State Second Pension system was abolished.

Mine is actually worth £50K but it would be worth a good 10% less if I had accepted a £400 bribe from AXA to slightly change the fund it was invested in back in 2001 when they spotted some loose cash in the fund and wanted policyholders permission to grab it! I smelled a rat and said no thanks, leave it as it is!

Who is your wife's policy with ? What sort of fund is it invested in?
If it is identical to mine then it still may have long legs and a surprisingly good return left in it which might be silly to cash in early.

For most people now, the one time existence of such a policy (whether it has already been cashed and spent or not) will also sadly at the moment be threatening their entitlement to a full £140pw plus Basic State Pension. I am over 55 and will soon get the good news or bad about this from HMRC as part of my State Pension forecast recently requested.

Some people like us long ago contracted out and almost never contracted back in types can only expect the equivalent basic state pension of the present day £113 per week, because of the contracted out second pension funded purely by NI rebates.

At one point when the government abolished State second pension, it looked like people like us could have our cake and eat it (cash in our SERPs policies and then expect the same Basic State Pension as those who were always contracted in. But seems that is a pipe dream for most contracted out pension members now.

It is all a bit confusing especially since HMRC plan to have recalculated everyones' complex / split multi-pension entitlements to Guaranteed Minimum Pension (GMP) and notified all the pension providers by 2018, but doubly so if your wife happens to have a valuable type of policy with interesting guarantees or bonuses - for example mine has 0% annual management charge and guaranteed minimum 4%pa growth rate.

Depending on what other GMP rights she has (old deferred DB schemes very often were also contracted out with annually revalued GMP rights within them) there may be an optimum time for her to cull and cash before HMRC tells individual providers they have been over-provisioning for their bit of the GMP, thus allowing them to reduce cash transfer values perhaps?

I myself am totally unsure about this. I have more than 5 separate pensions from different jobs, and three include GMP rights including my £50K SERPs policy.

I have been asking for further clues in other threads about how GMP pensions work together (or not) but it is still all as clear as mud to me

jamesd

Since she is 51 now the only option would be to transfer the money to another pension or leave it where it is. Whether leaving it or transferring it is best would depend on the investments that she wants to use and the charges for them. Either could be best.

She should be happy that she chose to contract out. As a result of the flat rate state pension system those of her age who contracted out will in general end up with both the full flat rate state pension and their contracted out pot, while those who did not contract out will have only the full flat rate state pension. I'm assuming here that she continues to pay NI for enough years to get to the maximum, which is easy at her age.

The first thing to know about consolidating is whether the pension is defined benefit, like final salary or average salary, or not. It's not going to be possible to consolidate those as defined benefit pensions because the pension schemes wouldn't accept the transfer. Usually a transfer to defined contribution wouldn't be possible either but in some cases the transfer value can be high enough to make it worth doing. The catch for those transfer is the cost,which could be around a thousand Pounds per pension just to work out whether it looks like a good move or not.

For the pensions that are personal pensions or defined benefit wok pensions it's easy to transfer and the main thing to look out for is guaranteed annuity rates on those sold before around the year 2000. Those can be valuable enough to keep the pension around instead of combining.

xylophone

Before she sees an Independent Financial Adviser, she needs to make a list of her pensions and check whether there are any whose records she has lost.

https://www.gov.uk/find-lost-pension

https://www.unbiased.co.uk/

agarnett

jamesd wrote: »

Since she is 51 now the only option would be to transfer the money to another pension or leave it where it is. Whether leaving it or transferring it is best would depend on the investments that she wants to use and the charges for them. Either could be best.

Yes you are right to remind that there will be no actual cashing out for a few years yet! But there are potentially other pitfalls of transfers between now and then:

1. You've mentioned possibility of guaranteed annuity rates on some pre-2000 personal pension policies, and standalone SERPs policies were usually exactly that (personal pension policies), albeit the guaranteed annuity thing would surely be quite rare?
2. I mentioned some have guaranteed growth rates e.g. mine at 4% pa and 0% annual management fee - no great shakes but better than some.
3. I also alluded to other special enhancements which could be lost upon transfer. I've mentioned mine a few times in other threads, but in 2011 my with-profits SERPs policy was topped up by £4,500 as a result of a special distribution following a special 5 year review that only applies to a minority of such policies. If I transferred mine today, then I might be writing off £4,500 or some other as yet unknown number which may well otherwise get added in 2016, and again in 2021, so timing may be key on some policies. This particular phenomenon is one that few IFAs are likely to be alive to. (I certainly haven't seen one on MSE who is alive to it!).

She should be happy that she chose to contract out. As a result of the flat rate state pension system those of her age who contracted out will in general end up with both the full flat rate state pension and their contracted out pot, while those who did not contract out will have only the full flat rate state pension. I'm assuming here that she continues to pay NI for enough years to get to the maximum, which is easy at her age.

This is what confuses me. I'm older with only 8½ years to State Retirement Age now, but I have some 38 years qualifying NI contributions so far. I think we need 35 for a Full Flat Rate Pension. However, I am not sure that any more than a handful of mine are "the right stuff" because the most of the ones that were received by HMRC were of course part rebated into my SERPs Policy. So that's why I am going to be interested in what my State Pension Forecast looks like now. I don't currently believe I'm going to get the Full Flat Rate. I reckon I'll only get the current basic pension equivalent of £113pw. Someone on another thread said people like me could still potentially claw back up a further £5pw in the few years of full NI contributions that I could still potentially work before SRA, but I don't know where that £5pw came from, nor do I know how many years a 51 year old who was completely contracted out until 2011 would have to work beyond 2011 making full NI contributions in order to get back up to the Full Flat Rate.

I am not denying that it is easy, but how exactly is it so?